New York judge scolds Argentina; says nation still has obligation to pay US bondholders

NEW YORK, N.Y. – A U.S. federal judge Friday urged Argentina to resume negotiations “as promptly as possible” to resolve its debt crisis and said the South American nation’s officials must stop publicly uttering what he described as “half-truths” that mislead people about its legal obligations.

U.S. District Judge Thomas P. Griesa scolded Argentina at a hearing, saying the country’s obligations to pay U.S. bond holders who obtained court judgments must be resolved, likely through negotiations. He said the officials’ statements all but ignored that fact.

“Half-truths are false and misleading,” he said. “Half-truths do not comply with the law, which requires disclosure of facts.”

Argentina entered economic limbo on Thursday after failed talks. It has been forced into a default that could undermine an already frail economy if the dispute with American creditors is not resolved soon.

The Manhattan court has blocked Argentina from making interest payments to creditors who exchanged their bonds in 2005 and 2010 for bonds of lesser value until it settles with U.S. hedge funds that claim they’re owed about $1.5 billion.

Argentina’s economy minister has said he’s willing to hold further talks.

Attorney Jonathan Blackman told Griesa that Argentina intends “in good faith to pursue this dialogue,” but its government had lost faith in court-appointed mediator Daniel Pollack after he issued a statement on Wednesday saying that Argentina would “imminently be in default.”

The characterization that Argentina was in default — after payments to 92 per cent of its bondholders who had exchanged bonds were not delivered by a Wednesday deadline — upset Argentine officials, who had argued the nation technically was not in default because it had made payments to banks, which obeyed court orders and refused to forward money to bondholders.

The International Swaps and Derivatives Association, which represents big banks around the world, rejected the Argentine position. On Friday, it declared a “failure-to-pay credit event” for the country, meaning that credit default swaps, or insurance contracts, on its debt will be paid to investors who had used the transactions to bet on a default.

Blackman said Pollack’s comments on default were “harmful and prejudicial to Argentina,” damaging it in the world’s financial markets, and had spoiled the “feeling of confidence” necessary for negotiations.

Blackman said a negotiated solution covering debt obligations to all bondholders was necessary because Argentina would owe over $20 billion to various bondholders triggered by paying the $1.5 billion owed to U.S. hedge funds. Those hedge funds are led by New York billionaire Paul Singer’s NML Capital Ltd.

Robert Cohen, a lawyer for hedge funds, praised Pollack, saying he had managed to get both sides face-to-face this week for the first time in 13 years for what “we think have been productive negotiations.”

Griesa said if Pollack characterized Argentina’s status as being in default, “it could be hardly said to be inaccurate.”

Describing Pollack as “completely impartial,” Griesa said there was no reason to replace him and urged a resumption of talks, saying it was “very important to proceed as promptly as possible with that.”

He said Argentine officials for too long had spoken of their desire to pay only bondholders who had exchanged their bonds “as if that were the end of the story,” ignoring obligations to pay others.

“The republic both in practice and public statements has attempted to ignore that,” he said, describing such behaviour as “lawless.”